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Wednesday, February 12, 2020

Hartalega up on profit growth as Covid-19 spurs higher glove demand

Arjuna Chandran Shankar/
February 12, 2020 15:26 pm +08

KUALA LUMPUR (Feb 12): Shares in Hartalega Holdings Bhd pared gains during afternoon trades today after rising as much as 15 sen or 2.5% to RM6.15 following the rubber glove maker's dividend and earnings announcement yesterday and as investors eye the sector's outlook amid the Covid-19 outbreak.

At 2:50pm, Hartalega shares were traded at RM6.12 for a market capitalisation of RM20.28 billion. The company was transacted among Bursa Malaysia top gainers.

Yesterday, Hartalega declared a dividend of 1.8 sen a share for the third quarter ended Dec 31, 2019 (3QFY20) and reported that 3QFY19 net profit rose to RM121.27 million from RM119.76 million a year earlier.

For 9MFY20, Hartalega said cumulative net profit slipped to RM319.2 million from RM364.84 million a year earlier.

Today, RHB Investment Bank Bhd analyst Alan Lim said in a note that Hartalega's 9MFY20 core net profit is in line with RHB's and street’s full-year forecasts.

"9MFY20 earnings of RM319 million make up 69%/70% of our/street’s full-year forecasts. We expect a strong earnings recovery in 4QFY20, as the utilisation rate [of Hartalega's production facilities] has exceeded 95%, versus 9MFY20’s 86%. We believe that 4QFY20 earnings will be stronger q-o-q as the two lines commissioned in January and February are likely to be fully utilised in a short time due to the surge in demand for gloves, in view of the ongoing concerns on the Covid-19 outbreak.

"We like Hartalega as it is a direct beneficiary of the increase in health awareness globally due to the spread of Covid-19,"Lim said.

Lim said RHB reiterated its “buy” call on Hartalega shares with an unchanged target price (TP) of RM7.55.

Affin Hwang Investment Bank Bhd analyst Ng Chi Hoong said in a note today that as Hartalega's factory utilisation rate has risen to 96%, the bank believes that Hartalega will have the flexibility to increase the selling price of its products to meet the recent surge in glove demand amid the Covid-19 outbreak.

"As such, we raise our TP to RM6.40 (from RM5.20) on the back of an earnings upgrade of 0.2%-3.5% over the next three years, but keep our “hold” call unchanged," Ng said.

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